Exhibit 10.3
(4/1/07)
MINERAL LEASE NO.
ML 51151
GRANT: SCH
UTAH STATE MINERAL LEASE
FORM
GEOTHERMAL ENERGY
LEASE
THIS MINING LEASE AND AGREEMENT (the
“Lease”) is entered into and is effective as of
DECEMBER 1, 2007, by and between the STATE OF UTAH, acting by and
through the SCHOOL AND INSTITUTIONAL TRUST LANDS ADMINISTRATION,
675 East 500 South, Suite 500, Salt Lake City, Utah 84102
(“Lessor”),
INTERMOUNTAIN RENEWABLE POWER,
LLC
5152 NORTH EDGEWOOD DRIVE, SUITE 375
PROVO, UT 84604
having a business address as shown
above (“Lessee”).
WITNESSETH:
That the State of Utah, as Lessor,
in consideration of the rentals, royalties, and other financial
consideration paid or required to be paid by Lessee, and the
covenants of Lessee set forth below, does hereby GRANT AND LEASE to
Lessee the exclusive right and privilege to explore for, drill for,
produce, remove, extract, store, utilize, treat, process, convert,
and sell, geothermal energy and related “products”,
including steam, and hot water (collectively “the leased
substances”), covered by this lease and located within the
boundaries of the following-described tract of land (the
“Leased Premises”) located in BEAVER County, State of
Utah:
T29S, R10W,
SLB&M.
SEC.
32: ALL
T30S, R10W,
SLB&M.
SEC.
36: LOTS 1(46.05), 2(44.75), 3(43.06),
4(41.10), W 1 / 2 E 1 / 2 , W 1 / 2 [ALL]
T30S, R12W,
SLB&M.
SEC.
2: LOTS 1(50.10), 2(50.27),
3(50.43),4(50.60), S 1 / 2 N 1 / 2 , S 1 / 2 [ALL]
Containing 1976.36 acres, more or
less.
Together with the right and
privilege to make use of the surface and subsurface of the Leased
Premises for uses reasonably incident to the production of leased
substances by Lessee on the Leased Premises or on other lands under
the control of Lessee or produced in connection with operations on
the Leased Premises, including, but not limited to roads,
pipelines, utility and power lines and other structures and
improvements and other purposes incident to development of the
leased substance; and the mitigation, restoration and reclamation
of the surface.
Geothermal Energy Lease 4/1/07
Page No. 2
This Mining Lease and Agreement is
subject to, and Lessee hereby agrees to and accepts, the following
covenants, terms, and conditions:
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1.1
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The word
“products” (collectively “leased
substances”) as used herein, means thermal energy in the form
of hot water, steam, by-products thereof, steam condensates, as
well as or electrical and other energy derived, generated or
manufactured from water, steam condensates and other by-products
derived or obtained from the geothermal leasehold estate. The
phrase “sufficient commercial quantities” as used
herein, means that amount and character of products extracted from
the subsurface geothermal estate which can be produced from the
leasehold sufficient for commercial sale thereof, or which would
warrant construction of facilities for processing or sale of such
product or of products.
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This mineral lease grants Lessee the
right, subject to the terms and conditions set forth herein, to
extract the leased substances. In the event that minerals or
materials other than the leased substances are discovered during
lease operations, Lessee shall promptly notify the Lessor and shall
not further disturb or remove the other minerals or materials
without Lessor’s written permission. Upon notifying Lessor of
such discovery the Lessee shall have preference in making
application to the Lessor for a lease or permit covering the
unleased minerals or materials that are discovered. There has not
been determined to date by judicial decision whether geothermal
steam, hot water and other water not associated with chemicals
constituting minerals at depths below the surface where potable
water may be developed by drilling, constitutes part of the surface
estate sold by the State of Utah with a reservation of minerals to
the State. Nor has it been determined by scientific discoveries or
analysis to date, whether geothermal steam and hot water at depths
where the same may be discovered below the surface of the earth,
are unassociated with and independent of chemicals constituting
minerals of the mineral estate reserved to the State of Utah. The
State claims said substances geologically are part of the mineral
estate and the surface owner other than the State of Utah in not
legally entitled to said resources and substances. In the event the
surface owner in said lands sold or conveyed by the State of Utah
with reservation of the minerals to the State, shall make any claim
to geothermal steam, hot water, and other water, whether by
executing a geothermal energy lease or otherwise makes claim, and a
dispute arises between the State of Utah and the surface owner as
to whether any geothermal steam, hot water or any other substance
or source of energy generated below the surface, is nonmineral in
character and independent of minerals reserved to the State of
Utah, when and if there is an adjudication by the Supreme Court of
the State of Utah adjudging such geothermal steam, hot water or any
other underground source of energy to be nonmineral in character
and independent of and not part of the mineral estate and to belong
to or to be part of the surface estate, the State of Utah as Lessor
shall refund that portion of the royalty which can be ascertained
to have been paid for any substances adjudged to be independent of
and not part of the mineral estate, upon ascertainment of what
recovered substances is mineral and what is nonmineral and the
proportionate value of the materials or substances nonmineral in
character, to which the surface owner would be entitled by virtue
of such judicial determination. Under no conditions will any rental
paid by the lessee to the lessor be refunded.
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1.2
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No Warranty
of Title . Lessor claims
title to the mineral estate covered by this Lease. Lessor does not
warrant title nor represent that no one will dispute the title
asserted by Lessor. It is expressly agreed that Lessor shall not be
liable to Lessee for any alleged deficiency in title to the mineral
estate, nor shall Lessee become entitled to any refund for any
rentals, bonuses, or royalties paid under this Lease in the event
of title failure.
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Geothermal Energy Lease 4/1/07
Page No. 3
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2.
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RESERVATIONS
TO LESSOR . Subject to
the exclusive rights and privileges granted to Lessee under this
Lease, and further provided that Lessor shall refrain from taking
actions with respect to the Leased Premises that may unreasonably
interfere with Lessee’s operations, Lessor hereby excepts and
reserves from the operation of this Lease the following rights and
privileges (to the extent that Lessor has the right to grant such
rights and privileges):
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2.1
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Rights-of-Way and Easements
. Lessor reserves the right,
following consultation with the Lessee, to establish rights-of-way
and easements upon, through or over the Leased Premises, under
terms and conditions that will not unreasonably interfere with
operations under this Lease, for roads, pipelines, electric
transmission lines, transportation and utility corridors, mineral
access, and any other purpose deemed reasonably necessary by
Lessor.
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2.2
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Other
Mineral Leases . Lessor
reserves the right to enter into mineral leases and agreements with
third parties covering minerals other than the leased substances,
under terms and conditions that will not unreasonably interfere
with operations under this Lease in accordance with Lessor’s
regulations, if any, governing multiple mineral
development.
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2.3
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Use and
Disposal of Surface . To
the extent that Lessor owns the surface estate of the Leased
Premises and subject to the rights granted to the Lessee pursuant
to this Lease, Lessor reserves the right to use, lease, sell, or
otherwise dispose of the surface estate or any part thereof,
provided that any such actions will not unreasonably interfere with
operations under this Lease. Lessor shall notify Lessee of any such
sale, lease, or other disposition of the surface estate.
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2.4
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Rights Not
Expressly Granted .
Lessor further reserves all rights and privileges of every kind and
nature, except as specifically granted in this Lease, provided that
any actions under such reservations will not unreasonably interfere
with operations under this Lease.
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3.
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TERM OF
LEASE; MINIMUM ROYALTIES; READJUSTMENT .
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3.1
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Primary
Term . This Lease is
granted for a “primary term” of 10 years from the date
hereinabove first written.
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3.2
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Extension
Beyond Primary Term By Production . Subject to Lessee’s compliance with the
other provisions of this Lease, this Lease shall remain in effect
beyond the primary term so long as leased substances are being
produced in sufficient commercial quantities as defined herein,
from the Leased Premises, or from lands constituting a logical
geothermal unit as approved by Lessor in its reasonable discretion.
For purposes of this lease, production of leased substances in
paying quantities shall mean the sale of the leased substances
during the lease-year in an amount sufficient to cover all
operating expenses accruing to the lessee pursuant to the leasehold
for that lease year, including the payment of all taxes and the
payment of rentals and royalties accruing to the Lessor.
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3.3
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Extension
Beyond Primary Term By Diligent Development, Financial Investment
and Minimum Royalty . In
the absence of actual production in paying quantities as set forth
in paragraph 3.2, Extension Beyond Primary Term, this Lease shall
remain in effect beyond the primary term only if the Lessee is
engaged in diligent operations, exploration or development
activity, as well as making a substantial financial investment,
which in Lessor’s sole discretion is calculated to advance
development or production of leased substances from the Leased
Premises or lands constituting a logical geothermal unit as
approved by the Director which includes the Leased Premises, and
Lessee pays the annual minimum royalty set forth in Paragraph 3.4,
Minimum Royalty, in advance, on or before the anniversary date of
the date first written hereinabove.
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Geothermal Energy Lease 4/1/07
Page No. 4
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3.4
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Minimum
Royalty . Commencing with
the eleventh lease year of this lease Lessee shall pay Lessor an
annual minimum royalty, in advance, on or before the Effective Date
and each anniversary thereof. The advance annual minimum royalty
shall be in the amount of $5.00 per acre. Lessee may credit each
lease-year’s minimum royalty payment against actual
production royalties accruing during that lease year, but such
credit shall not carry over beyond the lease year in which the
advance royalty was paid. Minimum royalties may not be credited
against the annual rentals or bonus bids.
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3.5
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Expiration;
Cessation of Production .
This Lease may not be extended pursuant to paragraph 3.3, Diligent
Operations, beyond the end of the twentieth year after the
Effective Date except by the actual production of leased substances
in commercial quantities from the Leased Premises or from lands
constituting an approved unit which includes the Leased Premises,
or except by suspension of the Lease pursuant to Article 17.3,
unless otherwise specifically approved in writing by the Director
of the Trust Lands Administration in the interest of the trust
beneficiaries. After expiration of the primary term, this Lease
will expire of its own terms, without the necessity of any notice
or action by Lessor, if: (a) Lessee fails to produce leased
substances in accordance with Article 3.2; (b) Lessee ceases
to engage in exploration, development, or operations or fails to
pay annual advance minimum royalties in accordance with Article
3.4; or, (c) the Director fails to make a written
determination that it is in the interest of the trust beneficiaries
to extend this lease.
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3.6
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Readjustment
Option . At the end of
the primary term and at the end of each period of ten
(10) years thereafter (“Readjustment Period”),
Lessor may exercise its option to readjust the terms and conditions
of this Lease, to obtain market value return to the Lessor,
(including, without limitation: rental rates, minimum royalties,
royalty rates, valuation methods, and provisions concerning
reclamation). Notice of intent to exercise the right to readjust is
timely given by Lessor if mailed prior to the end of the
Readjustment Period to the last address set forth for Lessee in
Lessor’s files. Lessor shall have up to one year after
exercising its option to readjust to review and communicate in
writing the final readjusted terms of the lease. If within thirty
(30) days after submission of the readjusted lease terms to
the Lessee, the Lessee determines that any or all of the proposed
readjusted terms and conditions are unreasonable, then Lessee shall
so notify Lessor in writing and the parties, acting reasonably,
shall attempt to resolve the objectionable term or condition. If
the parties are unable, acting reasonably, to resolve the matter
and agree upon the readjusted terms and conditions as submitted by
Lessor at the end of the Readjustment Period, Lessee shall forfeit
any right to the continued extension of this lease, and the lease
shall automatically terminate, provided that nothing herein shall
be deemed to preclude Lessee from appealing any readjustment by
Lessor pursuant to applicable law.
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4.
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BONUS
BID . Lessee agrees to
pay Lessor an initial bonus bid in the sum of N/A dollars as
partial consideration for Lessor’s issuance of this Lease,
payable in cash prior to execution of this lease. The initial bonus
bid may not be credited against annual rentals, annual minimum
royalties or production royalties accruing pursuant to this
lease.
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5.
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RENTALS/MINIMUM RENTALS . Lessee agrees to pay Lessor an annual rental
of $1.00 for each acre and fractional part thereof within the
Leased Premises; provided however, the minimum annual rental
required by this lease shall be $500.00 irrespective of acreage.
Lessee shall promptly pay annual rentals each year in advance on or
before the anniversary date of the Effective Date. The rental
payment for a mineral lease year may be credited against production
royalties only as they accrue for that lease year. The Lessee may
not credit rentals paid for one lease year against production
royalties accruing to another lease year. Rental payments may not
be credited against minimum royalties or bonus bids accruing to any
lease year.
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Geothermal Energy Lease 4/1/07
Page No. 5
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6.1
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Production
Royalties . Lessee shall
pay lessor a production royalty on the basis of 10% of the gross
value of the leased substance, including all bonuses and allowances
received by Lessee, at the point of shipment from the leased
premises or the geothermal field, of the first marketable product
or products produced from the leased substances and sold under a
bonafide contract of sale, whether or not such product or products
are produced through chemical or mechanical treating or processing
of the leased substances raw material. Payment or reimbursement by
the purchaser for any operator expense, including without
limitation payment for reinjection or disposal of water into the
well or aquifer or otherwise, are part of gross value for royalty
purposes.
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6.2
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Non-Arms
Length Transactions . In
the event that Lessee uses, sells or otherwise disposes of leased
substances without a non-arm’s-length contract or bill of
sale, Lessee shall promptly notify Lessor of such use, sale or
disposal. The Director may then determine and assign the Gross
Value to the leased substances for royalty purposes after taking
into account spot market prices, the value of similar or like
leased substances reported by other trust lands lessees, the value
of like mineral commodities as reported by the United States
Geological Survey, and other pertinent economic data regarding the
fair market value of the leased substances, f.o.b. the
mine.
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6.3
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No
Deductions . It is
expressly understood and agreed that none of Lessee’s
production or processing costs, including but not limited to costs
for materials, labor, overhead, distribution, processing, or
general and administrative activities, may be deducted in computing
Lessor’s royalty. All such costs shall be entirely borne by
Lessee and are anticipated by the rate of royalty set forth in this
Lease.
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6.4
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Royalty
Payment . For all leased
substances that are sold during a particular month, Lessee shall
pay royalties to Lessor on or before the end of the next succeeding
month. Royalty payments shall be accompanied by a verified
statement, in a form approved by Lessor, stating the amount of
leased substances sold, the gross proceeds accruing to Lessee, and
any other information reasonably required by Lessor to verify
production and disposition of the leased substances or leased
substances products. Delinquent royalties may be subject to late
fees and penalties in accordance with Lessor’s
Rules.
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6.5
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Suspension,
Waiver or Reduction of Rents or Royalties . Lessor, to the extent not prohibited by
applicable law, is authorized to waive, suspend, or reduce the
rental or minimum royalty, or reduce the royalty applicable with
respect to the entire Lease, whenever in Lessor’s sole
judgment it is necessary to do so in order to promote development,
or whenever in the Lessor’s sole judgment the Lease cannot be
successfully operated under the terms provided herein and continued
operations are in the trust land beneficiaries best
interest.
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7.
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RECORDKEEPING; INSPECTION; AUDITS
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7.1
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Registered
Agent; Records . Lessee
shall maintain a registered agent within the State of Utah to whom
any and all notices may be sent by Lessor and upon whom process may
be served. Lessee shall also maintain an office within the State of
Utah containing originals or copies of all maps, engineering data,
permitting materials, books, records or contracts (whether
such
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Geothermal Energy Lease 4/1/07
Page No. 6
documents are in paper or electronic
form) generated by Lessee that pertain in any way to leased
substances production, output and valuation; mine operations;
assays; processing returns; leased substances sales and
dispositions; and calculation of royalties. Lessee shall maintain
such documents for at least seven years after the date of the
leased substances production to which the documents
pertain.
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7.2
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Inspection . Lessor’s employees and authorized agents
at Lessor’s sole risk and expense shall have the right to
enter the Leased Premises, to go on any part of the Leased Premises
to examine, inspect, survey and take measurements for the purposes
of verifying production amounts and proper lease operations. Upon
reasonable notice to Lessee, Lessor’s employees and
authorized agents shall further have the right to audit, examine
and copy (at Lessor’s expense) all documents described in
paragraph 7.1, Registered Agent; Records, whether such documents
are located on the leased premises or elsewhere. Lessee shall
furnish all conveniences necessary for said inspection, survey, or
examination; provided, however, that such inspections shall be
conducted in a manner that is in conformance with all applicable
mine safety regulations and does not unreasonably interfere with
Lessee’s operations.
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7.3
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Geologic
Information . In the
event Lessee conducts core-drilling operations or other geologic
evaluation of the Leased Premises, Lessor may inspect core samples,
evaluations thereof, and proprietary geologic information
concerning the Leased Premises. Upon request by Lessor, Lessee
shall timely provide Lessor with a true and correct copy of all
such evaluations, geological reports, drilling logs, assays and
interpretive maps of the leased substances within the leased
lands.
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7.4
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Confidentiality . Any and all documents and geologic data
obtained by Lessor through the exercise of its rights as set forth
in paragraphs 7.2, Inspection., and 7.3, Geologic Information., may
be declared confidential information by Lessee, in which event
Lessor and its authorized agents shall maintain such documents and
geologic data as protected records under the Utah Governmental
Records Access Management Act or other applicable privacy statute,
and shall not disclose the same to any third party without the
written consent of Lessee, or as required under the order of a
court of competent jurisdiction requiring such disclosure, provided
that Lessor’s obligations of confidentiality to Lessee shall
cease upon termination of this Lease.
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8.
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USE OF
SURFACE ESTATE .
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8.1
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Lessor-Owned
Surface . If Lessor owns
the surface estate of all or some portion of the Leased Premises,
at the time of the execution of this Lease, by issuance of this
Lease the Lessee has been granted the right to make use of such
lands to the extent reasonably necessary and expedient for the
economic operation of the leasehold. Such surface uses shall be
exercised subject to the rights reserved to Lessor as provided in
paragraph 2, RESERVATIONS TO LESSOR, and without unreasonable
interference with the rights of any prior or subsequent lessee of
Lessor.
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